What Ildong Pharmaceutical Co., Ltd.'s (KRX:249420) 33% Share Price Gain Is Not Telling You

Ildong Pharmaceutical Co., Ltd. (KRX:249420) shares have continued their recent momentum with a 33% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 68%.

Even after such a large jump in price, it's still not a stretch to say that Ildong Pharmaceutical's price-to-sales (or "P/S") ratio of 1.3x right now seems quite "middle-of-the-road" compared to the Pharmaceuticals industry in Korea, where the median P/S ratio is around 0.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

View our latest analysis for Ildong Pharmaceutical

How Ildong Pharmaceutical Has Been Performing

For example, consider that Ildong Pharmaceutical's financial performance has been poor lately as its revenue has been in decline. One possibility is that the P/S is moderate because investors think the company might still do enough to be in line with the broader industry in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

Although there are no analyst estimates available for Ildong Pharmaceutical, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Some Revenue Growth Forecasted For Ildong Pharmaceutical?

The only time you'd be comfortable seeing a P/S like Ildong Pharmaceutical's is when the company's growth is tracking the industry closely.

Retrospectively, the last year delivered a frustrating 2.9% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 3.5% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for expansion of 18% shows it's an unpleasant look.

With this information, we find it concerning that Ildong Pharmaceutical is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent revenue trends is likely to weigh on the share price eventually.

The Bottom Line On Ildong Pharmaceutical's P/S

Ildong Pharmaceutical's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We find it unexpected that Ildong Pharmaceutical trades at a P/S ratio that is comparable to the rest of the industry, despite experiencing declining revenues during the medium-term, while the industry as a whole is expected to grow. Even though it matches the industry, we're uncomfortable with the current P/S ratio, as this dismal revenue performance is unlikely to support a more positive sentiment for long. If recent medium-term revenue trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Ildong Pharmaceutical that you need to be mindful of.

If these risks are making you reconsider your opinion on Ildong Pharmaceutical, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.